Seeking Adam Smith - Ethics Unwrapped
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Seeking Adam Smith
This is one of many possible forms of rent-seeking behavior. The idea of rent-seeking was developed by Gordon Tullock in ,  while the expression rent-seeking itself was coined in by Anne Krueger. Georgist economic theory describes rent-seeking in terms of land rent, where the value of land largely comes from government infrastructure and services e. This role must be separated from the role of a property developer , which need not be the same person.
Rent-seeking is an attempt to obtain economic rent i. Rent-seeking implies extraction of uncompensated value from others without making any contribution to productivity.
The classic example of rent-seeking, according to Robert Shiller , is that of a feudal lord who installs a chain across a river that flows through his land and then hires a collector to charge passing boats a fee or rent of the section of the river for a few minutes to lower the chain. There is nothing productive about the chain or the collector. The lord has made no improvements to the river and is not adding value in any way, directly or indirectly, except for himself.
All he is doing is finding a way to make money from something that used to be free. In many market-driven economies, much of the competition for rents is legal, regardless of harm it may do to an economy. However, some rent-seeking competition is illegal — such as bribery or corruption. Rent-seeking is distinguished in theory from profit-seeking , in which entities seek to extract value by engaging in mutually beneficial transactions. The Tullock paradox is the apparent paradox , described by Tullock, on the low costs of rent-seeking relative to the gains from rent-seeking.
The paradox is that rent-seekers wanting political favors can bribe politicians at a cost much lower than the value of the favor to the rent-seeker. Luigi Zingales frames it by asking, "Why is there so little money in politics? Several possible explanations have been offered for the Tullock paradox: .
An example of rent-seeking in a modern economy is spending money on lobbying for government subsidies in order to be given wealth that has already been created, or to impose regulations on competitors, in order to increase market share. Taxi licensing is a textbook example of rent-seeking. The concept of rent-seeking would also apply to corruption of bureaucrats who solicit and extract "bribe" or "rent" for applying their legal but discretionary authority for awarding legitimate or illegitimate benefits to clients.
Regulatory capture is a related term for the collusion between firms and the government agencies assigned to regulate them, which is seen as enabling extensive rent-seeking behavior, especially when the government agency must rely on the firms for knowledge about the market. Studies of rent-seeking focus on efforts to capture special monopoly privileges such as manipulating government regulation of free enterprise competition.
Often-cited examples include a lobby that seeks economic regulations such as tariff protection, quotas, subsidies,  or extension of copyright law. Economists such as the chair of British financial regulator the Financial Services Authority Lord Adair Turner have argued that innovation in the financial industry is often a form of rent-seeking. The phenomenon of rent-seeking in connection with monopolies was first formally identified in by Gordon Tullock.
Critics of the concept point out that, in practice, there may be difficulties distinguishing between beneficial profit-seeking and detrimental rent-seeking.
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Often a further distinction is drawn between rents obtained legally through political power and the proceeds of private common-law crimes such as fraud, embezzlement and theft. This viewpoint sees "profit" as obtained consensually, through a mutually agreeable transaction between two entities buyer and seller , and the proceeds of common-law crime non-consensually, by force or fraud inflicted on one party by another.
Rent, by contrast with these two, is obtained when a third party deprives one party of access to otherwise accessible transaction opportunities, making nominally "consensual" transactions a rent-collection opportunity for the third party. From a theoretical standpoint, the moral hazard of rent-seeking can be considerable.
If "buying" a favorable regulatory environment seems cheaper than building more efficient production, a firm may choose the former option, reaping incomes entirely unrelated to any contribution to total wealth or well-being. This results in a sub-optimal allocation of resources — money spent on lobbyists and counter-lobbyists rather than on research and development , on improved business practices, on employee training , or on additional capital goods — which retards economic growth.
Claims that a firm is rent-seeking therefore often accompany allegations of government corruption, or the undue influence of special interests.